Fearful homeowners have finally called a halt to a decade-long spree of cashing-in on the value of their properties to pay for big-ticket consumer spending and paying off debt, the Bank of England revealed yesterday.

The Bank’s latest figures show that Britons have abruptly abandoned the habit of borrowing against their houses and flats through mortgage equity withdrawal, bringing to an end a decade-long era of the nation using its homes as cash machines.

Second-quarter figures for equity withdrawal showed that, rather than raising borrowed cash against their properties, homeowners injected a net £2.8 billion of new equity.

This was the first such injection of cash since 1998 and the biggest such move in cash terms since 1970.

In practice, this means that homeowners collectively invested more capital in properties during the second quarter, either through paying down mortgages or cash payments to buy, than they raised through home loans.

The news marks a big turnaround. In the previous three months, homeowners unlocked £5.2 billion in cash by borrowing on their houses and, in the second quarter of last year, raised £10 billion. At its peak, mortgage equity withdrawal in the final quarter of 2003 peaked at £17.12 billion, or 8.6 per cent of after-tax incomes. As a proportion of households’ incomes after tax, equity withdrawal has now slumped from 2.3 per cent in the first quarter to minus 1.2 per cent in the following three-month period.

The switch comes as plummeting house prices leave homeowners reluctant to increase their mortgages to pay for consumer spending, which runs the risk of being caught in the trap of negative equity – with a home loan bigger than their property’s value.

House prices tumbled by another 1.7 per cent last month, taking their annual rate of decline to almost 13 per cent – their fastest year-on-year fall since 1991, the Nationwide Building Society reported this week.

At the same time, it has also become increasingly difficult for homeowners to borrow through equity withdrawal as banks scramble to tighten lending conditions and raise loan rates to insulate themselves from a rising tide of bad debts.

“Higher mortgage rates, markedly tighter credit conditions and falling house prices have increasingly reduced the attractiveness of, and scope for, equity withdrawal,” Howard Archer, of Global Insight, said.

The end of equity withdrawal will come as a severe blow to struggling retailers in the run-up to the crucial Christmas trading season.

With stores groups already struggling to tempt wary consumers to keep spending, as the economic downturn sends Britain sliding towards recession, the removal of this cushion for consumers’ pockets spells even harder times on the high street.

“This reinforces our belief that we are in for an extended period of serious consumer retrenchment,” Mr Archer said.

Paul Dales, of Capital Economics, agreed: “One of the key supports of household spending has now been removed.”

The figures further reinforced rising expectations in the City that the Bank will cut interest rates next week in a move to bolster rapidly declining consumer demand and prop up the economy.